About September 2012
Ludwig von Mises’s Human Action is still the key summation of the Austrian school of economics. In it, Mises describes certain conclusions, those of praxeology, as having a special epistemological status: They are deductive conclusions that are not subject to falsification. In plain language, they cannot fail to be true: While the findings of history may always be subject to revision—if new evidence is discovered, say, or if old evidence is found to be unreliable—the conclusions of praxeology will always be valid.
This move has brought critics of Austrian economics to cry foul. Such critics are apt to see the Austrian school as a group of almost cartesian rationalists, deducing economic theorems that, while perhaps interesting in their own right, can by definition have no purchase in the real world of economic policy and the study of human events.
Professor Steven Horwitz begs to differ. In his lead essay he argues that logical deduction has a strictly limited role to play in economics, and that Austrian economists are indeed making important empirical contributions to the field. Further, he argues that the Austrian school stands to teach mainstream economics a good deal about how to conduct empirical observations and interpret them properly. To discuss with Horwitz, we have invited three other distinguished economists, each of whom has been influenced by the Austrian school — while ultimately settling elsewhere methodologically: Bryan Caplan, George Selgin, and Antony Davies.
Professor Horwitz makes the case that the Austrian school of economics isn’t just a bunch of armchair theorists. Ludwig von Mises’s “praxeology” should not prevent and has not prevented economists from doing vital, real-world, empirical work on subjects including monetary policy, disaster recovery, communist political economy, and even piracy. Horwitz takes us on a tour of some of this work and suggests that the Austrian school can offer mainstream economics a number of vital insights.
Bryan Caplan argues that the Austrian school remains in general much more hostile to empiricism than mainstream economics. Austrian subjectivism is well and good, but its neglect of behavioral economics then constitutes a puzzling shortcoming. And even in the work Horwitz praises, there is little that is distinctively “Austrian”—little that necessarily relies on the distinctive methodological or conceptual apparatus of the Austrian school.
George Selgin argues that part of the disagreement at hand is semantic: Where von Mises and other Austrians used the word “economics” to denote what we now call “theoretical economics,” we need not be bound by this convention, particularly not if it tends to obscure. That said, a real disagreement remains, because many in the Austrian school have failed to grasp that a deduced theorem of economics can still be “in the (common) sense”—that is, it may still have no explanatory power over events in the real world. When such cases arrive, Selgin finds that Austrians are all too often flummoxed.
Antony Davies expresses admiration for Austrian-school economics as a “complementary approach” to the problems he tries to solve using modeling and mathematics. He finds Austrians at their most incisive in their critique of modern macroeconomics, which is based not on individual behavior, but on an “accounting identity.” He argues that both quantitative and non-quantitative methods can reveal important truths, and he suggests that Austrians should deploy the former in refuting their opponents’ theories.